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**UNITEDSTATES**

**SECURITIESAND EXCHANGE COMMISSION**

**WASHINGTON,DC 20549**

 

**FORM 10-Q**

 
| **x** | **Quarterly Report Under Section 13 or  15(d) of the Securities Exchange Act of 1934**

**For the  quarterly period ended June 30, 2008** |
|-------|----------------------------------------------------------------------------------------------------------------------------------------------------------|

 
| **o**      | **Transition Report pursuant to Section 13 or  15(d) of the Securities Exchange Act of 1934**                                                                                                                                                                                                                                                                                                                                                                                                                              |
|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** ** | **   For  the transition period from                                          to                                      .** |

 

**Commission file number 001-15070**

 

**REGENERX BIOPHARMACEUTICALS, INC.**

(Exact Name of Registrant as Specified in its Charter)

 

| **Delaware**             |   | **52-1253406**             |
|--------------------------|--------|----------------------------|
| (State of Incorporation) |   | (IRS Employer I.D. Number) |

 

**3 Bethesda Metro Center**

**Suite 630**

**Bethesda, Maryland 20814**

(Address of Principal Executive Offices)

 

**(301) 280-1992**

(Registrant’s Telephone Number, Including Area Code)

 

Indicate by check mark whether the registrant (1) has filed allreports required to be filed by Section 13 or 15(d) of the ExchangeAct of 1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has 
| been subject to  such filing requirements for the past 90 days. | Yes  x     No  o |
|-----------------------------------------------------------------|-----------------------------------------------------|

 

Indicate by check markwhether the registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer or a smaller reporting company. See definitions of “acceleratedfiler,” “large accelerated filer” and “smaller reporting company” in Rule 12b-2of the Securities Exchange Act of 1934. (Check one):

 
| Large accelerated  filer o                |   | Accelerated filer o          |
|------------------------------------------------|--------|-----------------------------------|
| Non-accelerated  filer o                  |   | Smaller reporting  company x |
| (Do not check if a  smaller reporting company) |   |                              |

 

Indicate by check mark whether the registrant is a shell company (asdefined in Rule 12b-2 of the Exchange Act).
|   | Yes  o     No  x |
|--------|-----------------------------------------------------|

 

51,553,527****shares of RegeneRx Biopharmaceuticals, Inc.Common Stock, par value $0.001 per share, were outstanding as of August 8,2008.

 

 

 

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**RegeneRx Biopharmaceuticals, Inc.**

**Form 10-Q**

**Quarterly Period Ended June 30, 2008**

 

### **INDEX**

### ** **

| ** **    | ** **            | **Page No.**                                                                                                                     |
|---------------|-----------------------|---------------------------------------------------------------------------------------------------------------------------------------|
| Part I.  | Financial Information |                                                                                                                                  |
|          |                  |                                                                                                                                  |
|          | Item 1.               | Financial Statements                                                                                                                  |   |
|          |                  |                                                                                                                                  |   |
|          |                  | Balance Sheets at June 30, 2008 (unaudited) and  December 31, 2007                                                          | 3 |
|          |                  |                                                                                                                                  |   |
|          |                  | Statements of  Operations for the three months and six months ended June 30, 2008 (unaudited) and June 30, 2007 (unaudited) | 4 |
|          |                  |                                                                                                                                  |   |
|          |                  | Statements of  Cash Flows for the six months ended June 30,  2008 (unaudited) and June 30,  2007 (unaudited)                | 5 |
|          |                  |                                                                                                                                  |   |
|          |                  | Notes to Financial Statements (unaudited)                                                                                             | 6-11 |
|          |                  |                                                                                                                                  |   |
|          | Item 2.               | Management’s  Discussion and Analysis of Financial Condition and Results of Operations                                           | 12 |
|          |                  |                                                                                                                                  |   |
|          | Item 3.               | Quantitative  and Qualitative Disclosures About Market Risk                                                                           | 16 |
|          |                  |                                                                                                                                  |   |
|          | Item 4                | Controls and Procedures                                                                                                               | 16 |
|          |                  |                                                                                                                                  |   |
| Part II. | Other Information     |                                                                                                                                  |
|          |                  |                                                                                                                                  |   |
|          | Item 1.               | Legal Proceedings                                                                                                                     | 17 |
|          |                  |                                                                                                                                  |   |
|          | Item  1A.             | Risk Factors                                                                                                                          | 17 |
|          |                  |                                                                                                                                  |   |
|          | Item 2.               | Unregistered  Sales of Equity Securities and Use of Proceeds                                                                          | 34 |
|          |                  |                                                                                                                                  |   |
|          | Item 3.               | Defaults  Upon Senior Securities                                                                                                      | 34 |
|          |                  |                                                                                                                                  |   |
|          | Item 4.               | Submission of  Matters to a Vote of Security Holders                                                                                  | 34 |
|          |                  |                                                                                                                                  |   |
|          | Item 5.               | Other Information                                                                                                                     | 34 |
|          |                  |                                                                                                                                  |   |
|          | Item  6.              | Exhibits                                                                                                                              | 34-35 |
|          |                  |                                                                                                                                  |   |
|          | Signatures            | 35                                                                                                                                    |

 

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# **PART I – FINANCIALINFORMATION**

# ** **

**Item 1.             Financial Statements**

** **

**RegeneRxBiopharmaceuticals, Inc.**

**Balance Sheets**

 
| ** **                                                                                                                 | ** ** | **June 30** | ** ** | **December 31,** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------|------------|------------------|------------|-----------------------|------------|
| ** **                                                                                                                 | ** ** | **2008**         | ** ** | **2007**              | ** ** |
| ** **                                                                                                                 | ** ** | **(Unaudited)**  | ** ** | ** **            | ** ** |
| ASSETS                                                                                                                     |       |             |       |                  |       |
| Current assets                                                                                                             |       |             |       |                  |       |
| Cash and cash  equivalents                                                                                                 |       | $                | 7,653,816  |                  | $          | 3,696,878 |   |
| Short-term  investments                                                                                                    |       | —           |       | 4,579,592             |       |
| Accounts  receivable                                                                                                       |       | —           |       | 26,951                |       |
| Prepaid expenses  and other current assets                                                                                 |       | 275,624          |       | 268,244               |       |
| Total current  assets                                                                                                      |       | 7,929,440        |       | 8,571,665             |       |
| Fixed assets,  net of accumulated depreciation of $72,314 and $62,227                                                      |       | 34,348           |       | 44,435                |       |
| Other  non-current assets                                                                                                  |       | 5,693            |       | 5,693                 |       |
| Total assets                                                                                                               |       | $                | 7,969,481  |                  | $          | 8,621,793 |   |
|                                                                                                                       |       |             |       |                  |       |
| LIABILITIES AND STOCKHOLDERS’ EQUITY                                                                                  |       |             |       |                  |       |
| Current  liabilities                                                                                                       |       |             |       |                  |       |
| Accounts payable                                                                                                           |       | $                | 452,897    |                  | $          | 273,561 |   |
| Accrued expenses                                                                                                           |       | 1,311,756        |       | 2,195,508             |       |
| Total current  liabilities                                                                                                 |       | 1,764,653        |       | 2,469,069             |       |
| Commitments                                                                                                                |       | —           |       | —                |       |
|                                                                                                                       |       |             |       |                  |       |
| Stockholders’  equity                                                                                                 |       |             |       |                  |       |
| Preferred stock,  $.001 par value per share, 1,000,000 authorized; no shares issued                                        |       | —           |       | —                |       |
| Common stock,  par value $.001 per share, 100,000,000 shares authorized; 51,553,527 and  46,553,527 issued and outstanding |       | 51,554           |       | 46,554                |       |
| Additional  paid-in capital                                                                                                |       | 78,996,402       |       | 73,513,292            |       |
| Accumulated  other comprehensive loss                                                                                      |       | —           |       | (1,543                | )          |
| Accumulated  deficit                                                                                                       |       | (72,843,128      | )          | (67,405,579           | )          |
| Total  stockholders’ equity                                                                                           |       | 6,204,828        |       | 6,152,724             |       |
| Total  liabilities and stockholders’ equity                                                                           |       | $                | 7,969,481  |                  | $          | 8,621,793 |   |

 

The accompanying notes are an integral part of these financialstatements.

 

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**RegeneRxBiopharmaceuticals, Inc.**

**Statementsof Operations**

(Unaudited)

 
| ** **                                            | ** ** | **Three-Months ended June 30,** | ** ** | **Six-Months ended June 30,** | ** ** |
|-------------------------------------------------------|------------|------------------------------------------------|------------|----------------------------------------------|------------|
| ** **                                            | ** ** | **2008**                                       | ** ** | **2007**                                     | ** ** | **2008** | ** ** | **2007** | ** ** |
| Revenues                                              |       | $                                              | —     |                                         | $          | — |   | $ | 32,167 |   | $ | — |   |
|                                                  |       |                                           |       |                                         |       |   |   |   |   |
| Operating  expenses:                                  |       |                                           |       |                                         |       |   |   |   |   |
| Research and  development                             |       | 1,797,697                                      |       | 1,926,392                                    |       | 3,432,163 |   | 4,358,248 |   |
| General and  administrative                           |       | 1,105,390                                      |       | 803,669                                      |       | 2,180,287 |   | 1,585,128 |   |
| Total operating  expenses                             |       | 2,903,087                                      |       | 2,730,061                                    |       | 5,612,450 |   | 5,943,376 |   |
| Loss from  operations                                 |       | (2,903,087                                     | )          | (2,730,061                                   | )          | (5,580,283 | ) | (5,943,376 | ) |
| Interest income                                       |       | 43,879                                         |       | 177,390                                      |       | 107,734 |   | 387,938 |   |
| Net loss                                              |       | $                                              | (2,859,208 | )                                            | $          | (2,552,671 | ) | $ | (5,472,549 | ) | $ | (5,555,438 | ) |
|                                                  |       |                                           |       |                                         |       |   |   |   |   |
| Basic and  diluted net loss per common share          |       | $                                              | (0.06      | )                                            | $          | (0.05 | ) | $ | (0.11 | ) | $ | (0.12 | ) |
| Weighted average  number of common shares outstanding |       | 51,553,527                                     |       | 46,553,527                                   |       | 50,125,173 |   | 46,404,761 |   |

 

The accompanying notes are an integral part of these financialstatements.

 

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**RegeneRxBiopharmaceuticals, Inc.**

**Statements of Cash Flows**

(Unaudited)

 
| ** **                                                                   | ** ** | **For the Six Months ended June 30,** | ** ** |
|------------------------------------------------------------------------------|------------|---------------------------------------------------------------------|------------|
| ** **                                                                   | ** ** | **2008**                                                            | ** ** | **2007** | ** ** |
|                                                                         |       |                                                                |       |   |   |
| Operating  activities:                                                       |       |                                                                |       |   |   |
| Net loss                                                                     |       | $                                                                   | (5,472,549 | ) | $ | (5,555,438 | ) |
| Adjustments to  reconcile net loss to net cash used in operating activities: |       |                                                                |       |   |   |
| Depreciation and  amortization                                               |       | 10,087                                                              |       | 10,300 |   |
| Non-cash  share-based compensation                                           |       | 540,350                                                             |       | 514,410 |   |
| Changes in  operating assets and liabilities:                                |       |                                                                |       |   |   |
| Accounts  receivable                                                         |       | 26,951                                                              |       | 272,491 |   |
| Prepaid expenses  and other current assets                                   |       | 27,620                                                              |       | (158,871 | ) |
| Other  non-current assets                                                    |       | —                                                              |       | 6,056 |   |
| Accounts payable                                                             |       | 179,336                                                             |       | (149,227 | ) |
| Accrued expenses                                                             |       | (883,752                                                            | )          | (53,801 | ) |
| Net cash used in  operating activities                                       |       | (5,571,957                                                          | )          | (5,114,080 | ) |
|                                                                         |       |                                                                |       |   |   |
| Investing  activities:                                                       |       |                                                                |       |   |   |
| Purchase of  short-term, available-for-sale investments                      |       | —                                                              |       | (12,345,108 | ) |
| Proceeds from  sales/maturities of short-term investments                    |       | 4,581,135                                                           |       | 7,900,000 |   |
| Purchase of  fixed assets                                                    |       | —                                                              |       | (10,433 | ) |
| Net cash  provided by (used in) investing activities                         |       | 4,581,135                                                           |       | (4,455,541 | ) |
|                                                                         |       |                                                                |       |   |   |
| Financing  activities:                                                       |       |                                                                |       |   |   |
| Net proceeds  from issuance of common stock                                  |       | 4,947,760                                                           |       | — |   |
| Preceeds from  exercise of warrants                                          |       | —                                                              |       | 45,706 |   |
| Net cash  provided by financing activities                                   |       | 4,947,760                                                           |       | 45,706 |   |
| Net increase  (decrease) in cash and cash equivalents                        |       | 3,956,938                                                           |       | (9,523,915 | ) |
| Cash and cash  equivalents:                                                  |       |                                                                |       |   |   |
| Beginning of  period                                                         |       | 3,696,878                                                           |       | 13,052,308 |   |
| End of period                                                                |       | $                                                                   | 7,653,816  |   | $ | 3,528,393 |   |

 

The accompanying notes are an integral part of these financialstatements.

 

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**RegeneRxBiopharmaceuticals, Inc.**

**Notes to Financial Statements**

**For the three-months ended June 30, 2008 and2007 (Unaudited)**

 

A.      ORGANIZATION,BUSINESS OVERVIEW AND BASIS OF PRESENTATION

 

RegeneRx Biopharmaceuticals, Inc. (the “Company”, “we”, “us”, “our”or “RegeneRx”), is a biopharmaceutical company focused on the discovery anddevelopment of novel molecules to promote tissue and organ repair. Currently, we have formulated three candidate drug products based on Thymosinbeta 4 (“Tb4”), a 43 amino acid peptide.  Current research suggests that these drugproducts may prove efficacious for multiple medical indications whenadministered either topically or systemically.  Therefore, we aredeveloping several Tb4-based therapeutic drug candidates: RGN-137, a topically applied gel product for hard-to-heal chronic dermalwounds; RGN-259, a sterile, preservative-free topical eye drop for ophthalmicwounds; and RGN-352, a parenteral (injectable) formulation for systemicdelivery of Tb4.  Weare initially targeting our parenteral formulation for the treatment ofpatients with an acute myocardial infarction (“AMI”) or heart attack.  We have applied for or hold over sixty world-widepatents on peptide compositions, uses and formulations related to dermal,ophthalmic and other organ and tissue repair, as well as for cosmetic andconsumer product applications.  We are sponsoring five clinical trialsunder Investigational New Drug Applications (“INDs”), cleared by the U.S. Foodand Drug Administration (“FDA”).  Thesefive trials are being conducted in parallel and include three Phase II dermalwound healing trials for RGN-137, our topical dermal gel product, a Phase IIophthalmic wound healing trial for RGN-259 our sterile eyedrops, and a Phase Iclinical trial for RGN-352, our injectable product candidate in support of ourcardiovascular clinical program.  Under one of our INDs and with Europeanregulatory approval, an affiliate of Sigma-Tau Finanziaria S.p.A. (“Sigma-Tau”),our largest stockholder and a leading international pharmaceutical company, isconducting one of the Phase II dermal wound healing clinical trials in venousstasis ulcers in Italy and Poland.  Sigma-Tau has assumed all costsassociated with that trial.

 

The accompanying unaudited interim financial statements reflect, in theopinion of management, all adjustments (consisting only of normal recurringadjustments) necessary for a fair presentation of our financial position,results of operations and cash flows for each period presented.  These statements have been prepared inaccordance with U. S. generally accepted accounting principles (“GAAP”) andwith the rules and regulations of the Securities and Exchange Commission (“SEC”),for interim financial statements. Accordingly, they do not include all of the information and footnotesrequired by GAAP.  These interimfinancial statements should be read in conjunction with the audited financialstatements as of and for the year ended December 31, 2007, and relatednotes thereto, included in our Annual Report on Form 10-K for the yearended December 31, 2007 (the “Annual Report”).

 

The accompanying December 31, 2007 financial information wasderived from our audited financial statements. Operating results for the three and six-month periods ended June 30,2008 are not necessarily indicative of the results to be expected for the yearending December 31, 2008 or any other future period.

 

We have not commercialized any of our product candidates to date and,to the extent that our capital resources may be insufficient to meet our futurecapital requirements, we may need to finance our future cash needs throughpublic or private equity offerings, debt financings or corporate collaborationand licensing arrangements. However, we do not currently have any commitmentsfor future external funding and additional equity or debt financing may not beavailable on a timely basis, on acceptable terms, or at all.  We may also be eligible to receive milestonepayments under our collaboration agreement with an affiliate of Sigma-Tau.  However, the achievement of the milestonesthat are required to trigger the 

 

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milestone payments and the timing of any such milestone payments isuncertain, and we may never receive a milestone payment.

 

If adequate funds are not available, we may be required to delay,reduce the scope of or eliminate our research and development programs orobtain funds through arrangements with collaborators or others that may requireus to relinquish rights to certain product candidates that we might otherwiseseek to develop or commercialize independently. In addition, if we raise fundsby selling additional shares of our common stock or securities convertible intoour common stock, the ownership interest of our existing stockholders may besignificantly diluted. If additional funds are raised through the issuance ofpreferred stock or debt securities, these securities are likely to have rights,preferences and privileges senior to our common stock and may involvesignificant fees, interest expense, restrictive covenants and the granting ofsecurity interests in our assets.

 

B.      NETLOSS PER SHARE

 

Net loss per share is based on the weighted average number of commonshares outstanding during the three and six-month periods ended June 30,2008 and 2007.  During these periods,certain securities were not included in the calculation as their effect wouldbe anti-dilutive.  Securities that couldpotentially dilute basic net loss per share in the future, and that were notincluded in the calculation of diluted net loss per share, are as follows:

 
| ** **                                                                          | ** ** | **June 30,** | ** ** |
|-------------------------------------------------------------------------------------|------------|-------------------|------------|
| ** **                                                                          | ** ** | **2008**          | ** ** | **2007** | ** ** |
|                                                                                |       |              |       |   |   |
| Outstanding  stock options                                                          |       | 4,032,500         |       | 3,520,000 |   |
| Warrants                                                                            |       | 3,837,320         |       | 3,522,544 |   |
| Total potential  common shares excluded from diluted net loss per share computation |       | 7,869,820         |       | 7,042,544 |   |

 

C.      STOCKBASED COMPENSATION

 

Wehave a share-based compensation plan under which employees, consultants,advisors and non-employee directors may be granted options to purchase sharesof our common stock at the fair market value at the time of grant.  We recognize the fair value of share-basedcompensation in net loss on a straight-line basis over the requisite serviceperiod.

 

Thefollowing table provides amounts of share-based compensation cost recorded inthe statement of operations:

 

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| ** **                              | ** ** | **Three months ended** | ** ** | **Six Months ended** | ** ** |
|-----------------------------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **                              | ** ** | **March 31,**               | ** ** | **June 30,**              | ** ** |
| ** **                              | ** ** | **2008**                         | ** ** | **2007**                       | ** ** | **2008** | ** ** | **2007** | ** ** |
| ** **                              | ** ** | ** **                       | ** ** | ** **                     | ** ** | ** ** | ** ** | ** ** | ** ** |
| Employees                               |       | $                                | 184,255    |                           | $          | 161,750 |   | $ | 346,464 |   | $ | 323,485 |   |
| Non-employees                           |       | 93,893                           |       | 94,911                         |       | 193,886 |   | 190,925 |   |
|                                    |       |                             |       |                           |       |   |   |   |   |
| Total  share-based compensation expense |       | $                                | 278,148    |                           | $          | 256,661 |   | $ | 540,350 |   | $ | 514,410 |   |
|                                    |       |                             |       |                           |       |   |   |   |   |
| Research and  development               |       | $                                | 111,509    |                           | $          | 105,272 |   | $ | 217,043 |   | $ | 211,653 |   |
| General and  administrative             |       | 166,639                          |       | 151,389                        |       | 323,307 |   | 302,757 |   |
|                                    |       |                             |       |                           |       |   |   |   |   |
| Total  share-based compensation expense |       | $                                | 278,148    |                           | $          | 256,661 |   | $ | 540,350 |   | $ | 514,410 |   |

 

Duringthe first six months of 2008 and 2007, we granted options to purchase 487,500shares of our common stock and 835,000 shares of our common stock,respectively. The weighted average fair value of options granted for the firstsix months of 2008 and 2007 was $1.25 and $2.25 per option, respectively, andwas determined using the following assumptions:

 
| ** **                | ** ** | **2008**    | ** ** | **2007**    | ** ** |
|---------------------------|------------|-------------|------------|-------------|------------|
|                      |       |        |       |        |       |
| Dividend yield            |       | 0.0         | %          | 0.0         | %          |
| Risk free rate  of return |       | 2.7 - 3.7   | %          | 4.5 - 5.1   | %          |
| Expected life in  years   |       | 4.75 - 4.75 |       | 4.75 - 5.00 |       |
| Volatility                |       | 73          | %          | 68 - 75     | %          |

 

AtJune 30, 2008, there was approximately $1,861,867 of total unrecognizedcompensation expense related to nonvested stock options which will berecognized over a weighted average period of 1.3 years.

 

D.    EQUITYTRANSACTIONS

 

On February 29,2008, we closed agreements with two affiliates of Sigma-Tau, who are bothaccredited investors, with respect to the sale of 5,000,000 shares of commonstock at a price per share of $1.00 for gross proceeds of $5,000,000.  Inconnection with the offering, we also issued warrants to purchase an additional1,000,000 shares of common stock with an exercise price of $1.60 pershare.  Under the terms of the offering, we may, in our sole discretion,repurchase the shares sold in the offering at any time until December 31,2009, for $2.00 per share or, at any time between January 1, 2010 and December 31,2010, for $2.50 per share.  Our repurchase right terminates after December 31,2010.  In addition, the purchasers have agreed to vote the shares sold inthe offering, and any additional shares issued pursuant to the exercise of thewarrants, at the direction of our Board of Directors until December 31,2010.  The warrants have a term of three years.  One-third of thewarrants vested upon the closing of the offering, one-third is scheduled tovest on December 31, 2008, and one-third is scheduled to vest on December 31,2009.  However, should we repurchase all of the shares subject to theoffering prior to December 31, 2009, any unvested warrants would terminateas of the date we complete the repurchase.

 

On December 31,2007, we amended the terms of certain warrants held by Sigma-Tau and otherinvestors which were scheduled to expire between December 31, 2007 and January 7,2008 to extend the expiration date of each warrant to March 31, 2008 andto eliminate the cashless exercise provisions of these warrants.  On March 31,2008, we again amended the terms of such warrants to extend the expiration dateof each 

 

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warrant to December 31,2009. None of the warrant holders paid any additional consideration for theseamendments.  While a related non-cash dividend should bereflected in the financial statements for this transaction, its value was notmaterial and therefore no associated amounts were recorded.  We estimatedthe value of this non-cash dividend by using the Black-Scholes pricing modelwith the following assumptions: warrants to purchase 444,250 shares of commonstock were extended while warrants to purchase 18,558 shares of common stockexpired by their terms on March 31, 2008; dividend yield of zero percent;expected volatility of 70%; risk free interest rate of 1.62% and expected life1.38 years.

 

At June 30,2008, we had issued and outstanding warrants to purchase 3,837,320 shares ofour common stock at a weighted average purchase price of $3.11 per share aftergiving effect to the March 31, 2008 warrant extension and includingwarrants to purchase 333,334 shares of our common stock that were issued on February 29,2008 to certain affiliates of Sigma-Tau, each as described above.

 

On July 2,2008, stockholders approvedan amendment to the Company’s Amended and Restated 2000 Stock Option andIncentive Plan, as amended (the “Plan”), to increase the aggregate number ofshares of common stock authorized for issuance under the Plan by2.3 million shares to an aggregate of 6.5 million shares.  As of June 30, 2008 we had issuedand outstanding options to purchase 4,032,500 shares of our common stock at aweighted average purchase price of $1.73 per share

 

E. PRONOUNCEMENTS IMPLEMENTED

 

On January 1, 2008,we adopted Emerging Issues Task Force (“EITF”) Issue No. 07-3, “Accounting for Advance Payments for Goods orServices Received for Use in Future Research and Development Activities”**(“EITF 07-3”), which is beingapplied prospectively for new contracts. EITF 07-3 addresses nonrefundableadvance payments for goods or services that will be used or rendered for futureresearch and development activities. EITF 07-3 requires these payments bedeferred and capitalized and recognized as an expense as the related goods aredelivered or the related services are performed. The effect of the adoption ofEITF 07-3 on our financial position and results of operations was to record acumulative, catch-up adjustment to increase prepaid expenses and decrease theaccumulated deficit by $35,000.  Thisadjustment was recorded as of January 1, 2008.

 

In September 2006,the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS 157”),which provides guidance for using fair value to measure assets and liabilities.The pronouncement clarifies (1) the extent to which companies measureassets and liabilities at fair value; (2) the information used to measurefair value; and (3) the effect that fair value measurements have onearnings. SFAS 157 will apply whenever another standard requires (or permits)assets or liabilities to be measured at fair value. SFAS 157 is effective as ofJanuary 1, 2008. The adoption of SFAS 157 did not have an impact on theCompany’s financial position or operating results. On February 12, 2008,the FASB issued FASB Staff Position FAS No. 157-2 (“FSP 157-2”). FSP 157-2permits a delay in the effective date of SFAS No. 157 to fiscal yearsbeginning after November 15, 2008 for nonfinancial assets and nonfinancialliabilities, except for items that are recognized or disclosed at fair value inthe financial statements on a recurring basis, at least annually. The Companyis currently assessing the impact of SFAS 157 for non-financial assets andnon-financial liabilities on its consolidated statements of financial positionand results of operations.

 

In February 2007,the FASB issued SFAS No. 159 (“SFAS 159”), “The Fair Value Option forFinancial Assets and Financial Liabilities.” Under SFAS 159, companies may elect to measure certain financialinstruments and certain other items at fair value. The standard requires thatunrealized gains and losses on items for which the fair value option has beenelected be reported in earnings. SFAS 159 was effective for us beginning in thefirst quarter of fiscal 2008. We currently do not have any instruments eligiblefor 

 

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election of the fairvalue option. Therefore, the adoption of SFAS 159 in the first quarter offiscal 2008 did not impact our financial position, results of operations orcash flows.

 

F. PRONOUNCEMENTS NOT YET IMPLEMENTED

 

In December 2007,the FASB ratified the consensus reached by the EITF on Issue No. 07-1 (“EITF07-1”), “Accounting for Collaborative Arrangements.” EITF 07-1 is effectivebeginning January 1, 2009 and will be applied retrospectively to all priorperiods presented for all collaborative arrangements existing as of theeffective date. EITF 07-1 defines collaborative arrangements and establishesreporting requirements for transactions between participants in a collaborativearrangement and between participants in the arrangement and third parties. Weare assessing the impact of adoption of EITF 07-1 on our financial position andresults of operations.

 

In December 2007,the FASB issued SFAS No. 141(R) (“SFAS 141(R)”), “BusinessCombinations.”   SFAS 141(R) establishesprinciples and requirements for how the acquirer in a business combinationrecognizes and measures identifiable assets acquired, liabilities assumed,non-controlling interest in the acquiree and goodwill acquired, and expandsdisclosures about business combinations. SFAS 141(R) requires the acquirerto recognize changes in valuation allowances on acquired deferred tax assets tobe recognized in operations. These changes in deferred tax benefits werepreviously recognized through a corresponding reduction to goodwill. With theexception of the provisions regarding acquired deferred taxes, which areapplicable to all business combinations, SFAS 141(R) applies prospectivelyto business combinations for which the acquisition date is on or after thebeginning of the first annual reporting period beginning on or after December 15,2008. Early adoption is not permitted. We do not expect the adoption of SFAS141(R) to have a material impact on our financial condition or results ofoperations.

 

In December 2007,the FASB issued SFAS No. 160 (“SFAS 160”), “Non-controlling Interests inConsolidated Financial Statements—an amendment of ARB No. 51.” SFAS 160establishes accounting and reporting standards that require:

 

·                  The ownership interests in subsidiariesheld by parties other than the parent be clearly identified, labeled, andpresented in the consolidated balance sheet within equity, but separate fromthe parent’s equity;

 

·                  The amount of consolidated net incomeattributable to the parent and to the non-controlling interest be clearlyidentified and presented on the face of the consolidated statement of income;

 

·                  Changes in a parent’s ownershipinterest while the parent retains its controlling financial interest in itssubsidiary be accounted for consistently;

 

·                  When a subsidiary is deconsolidated,any retained non-controlling equity investment in the former subsidiary beinitially measured at fair value;

 

·                  Entities provide sufficientdisclosures that clearly identify and distinguish between the interests of theparent and the interests of the non-controlling owners.

 

SFAS 160 is effective forfiscal years, and interim periods within those fiscal years, beginning on orafter December 15, 2008. Early adoption is not permitted. SFAS 160 shallbe applied prospectively as of the beginning of the fiscal year in which it isinitially applied, except for the presentation and disclosure requirements. Thepresentation and disclosure requirements shall be applied retrospectively forall periods 

 

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presented. We do notexpect the adoption of SFAS 160 to have a material impact on our financialcondition or results of operations.

 

In March 2008, theFASB issued SFAS No. 161 (“SFAS 161”), “Disclosures about DerivativeInstruments and Hedging Activities — an amendment of FASB Statement No. 133.”SFAS 161 enhances the current disclosure framework in SFAS No. 133 (“SFAS133”), “Accounting for Derivative Instruments and Hedging Activities,” byrequiring entities to provide detailed disclosures about how and why an entityuses derivative instruments, how derivative instruments and related hedgeditems are accounted for under SFAS 133 and its related interpretations and howderivative instruments and related hedged items affect an entity’s financialcondition, results of operations and cash flows. SFAS 161 is effective forfinancial statements issued for fiscal years beginning after November 15,2008. We do not expect the adoption of SFAS 161 to have a material impact onour financial condition or results of operations.

 

G. INCOME TAXES

 

As of June 30,2008, there have been no material changes to our uncertain tax positions disclosuresas provided in Note 8 of the Annual Report. We do not anticipate that totalunrecognized tax benefits will significantly change prior to June 30,2009.

 

H. FAIR VALUE MEASUREMENTS

 

On January 1, 2008,we adopted FAS 157 “Fair Value Measurements” (SFAS No. 157), whichestablished a framework for measuring fair value in GAAP and clarified thedefinition of fair value within that framework. SFAS No. 157 does notrequire assets and liabilities that were previously recorded at cost to berecorded at fair value. For assets and liabilities that are already required tobe disclosed at fair value, SFAS No. 157 introduced, or reiterated, anumber of key concepts which form the foundation of the fair value measurementapproach to be used for financial reporting purposes. The fair value of ourfinancial instruments reflects the amounts that we estimate to receive inconnection with the sale of an asset or paid in connection with the transfer ofa liability in an orderly transaction between market participants at themeasurement date (exit price). SFAS No. 157 also established a fair valuehierarchy that prioritizes the use of inputs used in valuation techniques intothe following three levels:

 

·       Level 1 - Quoted prices in active marketsfor identical assets and liabilities.

 

·       Level 2 - Observable inputs other thanquoted prices in active markets for identical assets and liabilities.

 

·       Level 3 - Unobservable inputs.

 

In accordance with SFAS No. 157,the following table represents our fair value hierarchy for financial assets(cash equivalents and investments) measured at fair value on a recurring basisas of June 30, 2008:

 
| ** **                 | ** ** | **Level 1** | ** ** | **Level 2** | ** ** | **Level 3** | ** ** | **Total** | ** ** |
|----------------------------|------------|------------------|------------|------------------|------------|------------------|------------|-----------|------------|
| Cash and cash equivalents: |       |             |       |             |       |             |       |      |       |
|                       |       |             |       |             |       |             |       |      |       |
| Money market funds         |       | $                | 7,653,816  |             | $          | —           |       | $         | —     |   | $ | 7,735,354 |   |
|                       |       |             |       |             |       |             |       |      |       |
| Total                      |       | $                | 7,653,816  |             | $          | —           |       | $         | —     |   | $ | 7,735,354 |   |

 

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**ITEM 2.****     Management’s Discussion andAnalysis of Financial Condition and Results of Operations**

 

*This Quarterly Report on Form 10-Q, including the sectionentitled “Management’s Discussion and Analysis of Financial Condition andResults of Operations,” contains forward-looking statements regarding us andour business, financial condition, results of operations and prospects withinthe meaning of the Private Securities Litigation Reform Act of 1995.Forward-looking statements may be identified by the words “project,” “believe,”“anticipate,” “plan,” “expect,” “estimate,” “intend,” “should,” “would,” “could,”“will,” “may” or other similar expressions.*** ***In addition, anystatements that refer to projections of our future financial performance, ourclinical development programs and schedules, our anticipated growth and trendsin our business and other characterizations of future events or circumstancesare forward-looking statements. We cannot guarantee that we will achieve theplans, intentions or expectations expressed or implied in our forward-lookingstatements.  Thereare a number of important factors that could cause actual results, levels ofactivity, performance or events to differ materially from those expressed orimplied in the forward-looking statements we make, including those describedunder “Risk Factors” set forth below. In addition, any forward-lookingstatements we make in this document speak only as of the date of this document,and we do not intend to update any such forward-looking statements to reflectevents or circumstances that occur after that date.*

 

**Overview**

 

Our operations consist primarily of pre-clinicalstudies and clinical trials related to the development of product candidatesbased on Thymosin beta 4(“Tb4”), a 43 amino acid peptide.Currently, we are developing three Tb4-baseddrug formulations, including:  RGN-137, atopically applied gel for chronic dermal wounds; RGN-259, a sterile eye dropfor ophthalmic injuries; and RGN-352, a parenteral (injectable) formulation forsystemic delivery of Tb4. We are initially targeting our parenteralformulation for the treatment of patients with an acute myocardial infarction (“AMI”)or heart attack.  We are currentlysponsoring, in parallel, three Phase II dermal wound healing clinical trialsusing RGN-137, a Phase II ophthalmic wound healing trial using RGN-259, and aPhase I clinical trial utilizing RGN-352 to support our cardiovascular clinicalprogram.  Under our Phase II Investigational New Drug Application (“IND”)and with European regulatory approval, an affiliate of our largeststockholder, Sigma-Tau FinanziariaS.p.A.  (“Sigma-Tau,”), isconducting one of the Phase II dermal wound healing clinical trials in theEuropean Union and has assumed all associated costs.  We are primarily responsible for the costsassociated with the other four trials.

 

We have never generated revenues from product sales,and we do not expect to generate significant revenues until the U.S. Food andDrug Administration (“FDA”) approves one of our product candidates, if ever,and we are able to successfully commercialize such product. We expect to investsignificant amounts in furtherance of our current clinical programs and may addadditional pre-clinical studies and new clinical trials as we explore thepotential of our current product candidates in other indications and/or explorenew formulations of Tb4-basedproduct candidates.  Consequently, weexpect to incur substantial and increasing losses for at least the next severalyears.  Accordingly, we will need togenerate significant revenues to achieve and then maintain profitability.  We cannot assure you that we will be able togenerate revenue sufficient to achieve and maintain profitability or at all.Also, we expect that we will need to raise substantial additional outsidecapital in order to meet our current and future capital requirements.  We cannot assure you that such capital willbe available when needed, or on acceptable terms.

 

Most of our expendituresto date have been for research and development (“R&D”) and general andadministrative (“G&A”) activities. R&D includes all of the wholly-allocable costs associated with ourvarious clinical programs passed through to us by our outsourced vendors.  Those costs include:  manufacturing Tb4;formulation of Tb4into the various product candidates; stability for both Tb4and the various formulations; pre-clinical toxicology, safety andpharmacokinetic studies; clinical trial management; patient care and studyparticipation; medical oversight; laboratory evaluations; statistical data 

 

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analysis; regulatorycompliance; quality assurance; and other related activities.  R&D also includes cash and non-cashcompensation, employee benefits, travel and other miscellaneous costs relatedto our internal R&D personnel, which comprises seven persons in total, whoare wholly dedicated to our R&D efforts. R&D also includes a pro-ration of our common infrastructure costsfor office space and communications.  Weexpense our R&D costs as they are incurred.

 

R&D expenditures aresubject to the risks and uncertainties associated with clinical trials and theFDA review and approval process. As a result, these expenses could bematerially higher than anticipated.  Itis also difficult to estimate future R&D costs related to our pre-clinicalstudies as these amounts are subject to the outcome of current clinical studies,management’s continuing assessment of the economics of each individual R&Dproject and internal competition for project funding.

 

G&A costs include outside professional fees forlegal, audit and accounting services, including the costs to prosecute newpatent applications and maintain existing patents; review, draft and negotiatefinancing, manufacturing and other corporate documents; research and concludeon appropriate financial reporting matters, compliance with the Sarbanes-OxleyAct of 2002 and the financial audits required by the Securities and ExchangeCommission (“SEC”).  G&A alsoincludes cash and non-cash compensation, employee benefits, travel and othermiscellaneous costs related to our internal G&A personnel, which comprisesthree persons in total, who are wholly dedicated to our G&A efforts.  G&A also includes a proration of ourcommon infrastructure costs for office space and communications.

 

**Critical Accounting Policies.**

 

In Item7 (“Management’s Discussion and Analysis ofFinancial Condition and Results of Operations”) of our Annual Report on Form 10-Kfor the year ended December 31, 2007, which was filed with the Securitiesand Exchange Commission on March 28, 2008, we included a discussion of themost significant accounting policies and estimates used in the preparation ofour financial statements. There has been no material change in the policies andestimates used in the preparation of our financial statements since the filingof our most recent annual report.

 

**Results of Operations**

 

***Comparison of the three monthsended June 30, 2008 and 2007***

 

*Revenues*.  For the three months ended June 30, 2008and 2007, there were no revenue recognized under our grant from the NationalInstitutes of Health (“NIH”) for the orphan indication Epidermolysis Bullosa (“EB”) because the first year grant fundswere fully earned by December 31, 2006 and the second year grant fundswere fully earned between July 1, 2007 and March 31, 2008.

 

*R&D Expenses*.  For the three months ended June 30,2008, our R&D expenses decreased by approximately $0.1 million, or 7%, toapproximately $1.8 million, as compared to approximately $1.9 million for thethree months ended June 30, 2007, due generally to minor differences inthe level of patient enrollment activity between the respective periods.

 

*G&A Expenses.*  For the three months ended June 30,2008, our G&A expenses increased by approximately $0.3 million, or 38%, toapproximately $1.1 million, as compared to approximately $0.8 million for thethree months ended June 30, 2007. This difference was attributable toincreased legal costs related to the continued expansion of our intellectualproperty portfolio and other business development matters.

 

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***Comparison of the six monthsended June 30, 2008 and 2007***

 

*Revenues*.  Forthe six months ended June 30, 2008, revenue was $32,167, compared to norevenue in the six months ended June 30, 2007.  Our revenue in the six months ended June 30,2008 consisted entirely of costs recoverable as revenue through our grant fromthe NIH for EB.  These original grant funds were exhausted in the firstquarter of 2008.  On July 30, 2008 asupplemental award of $136,245 was granted by the NIH, which will be recognizedas revenue subsequent to June 30, 2008 to the extent that qualifyingincurred costs are realized.

 

*R&D Expenses*.  For the six months ended June 30, 2008,our R&D expenses decreased by approximately $0.9 million, or 21%, toapproximately $3.4 million, as compared to approximately $4.3 million for thesix months ended June 30, 2007, primarily due to our periodic purchase ofTb4.  During the first six months of 2007 wepurchased $0.9 million of Tb4 without acorresponding purchase in the first six months of 2008.  We again purchased approximately $0.8 millionof Tb4 at the end of 2007 and currently do not plan onmaking another purchase of Tb4 during calendar 2008.

 

*G&A Expenses.*  For the six months ended June 30, 2008,our G&A expenses increased by approximately $0.6 million, or 38%, toapproximately $2.2 million, as compared to approximately $1.6 million for thesix months ended June 30, 2007. This difference was attributable toincreased legal costs related to the continued expansion of our intellectualproperty portfolio and other business development matters.

 

**Liquidity and Capital Resources**

 

***Sources of Liquidity***

 

As of June 30, 2008,we had cash and cash equivalents of approximately $7.7 million.  This compares to cash, cash equivalents andshort-term investments of approximately $8.3 million at December 31, 2007.Our cash position decreased in the first six months of 2008 by a net $0.6million.  During the six month period weused $5.6 million in operating activities, off set by net proceeds of $5.0million received from the sale of 5 million shares of our common stock toaffiliates of Sigma-Tau on February 29, 2008.

 

At March 31, 2008 wehad $9.9 million in cash and cash equivalents. In comparison, our June 30, 2008 balance of cash and cashequivalents of $7.7 million represents a decrease of $2.2 million, whichrepresents the cash used in operations for the three months ended June 30,2008.

 

***CashFlows***

 

**Net Cash Used in OperatingActivities. **Net cashused in operating activities for the six months ended June 30, 2008 wasapproximately $5.6 million, approximately $0.3 million more than net cash usedin operating activities during the same period in 2007.  The difference was primarily due to our increaseduse of cash to affect a reduction in accounts payable and accrued expenses.

 

**Net Cash Provided By/Used InInvesting Activities. **Netcash provided by investing activities was approximately $4.6 million for thesix months ended June 30, 2008, as compared to net cash used in investingactivities of $4.5 million for the six months ended June 30, 2007.  Our investing activities provided net cash ofapproximately $4.6 million in the first six months of 2008 from the maturity ofvarious short-term investments which were re-invested in a U.S.Treasury-backed, cash-equivalent money market. By contrast, in the first six months of 2007, we invested approximately$4.6 million of cash 

 

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proceeds from our December 21,2006 private placement in short-term, investment-grade securities.

 

**Net Cash Provided by FinancingActivities. **Net cashprovided by financing activities totaled approximately $4.9 million for the sixmonths ended June 30, 2008 as a result of our private placement ofsecurities on February 29, 2008.  Bycontrast, net cash provided by financing activities totaled approximately$45,000 in the six months ended June 30, 2007, consisting entirely of theproceeds from the exercise of warrants to purchase our common stock.

 

***FutureFunding Requirements***

 

As of the date of this report, we believe we havesufficient liquidity and capital resources to fund our operations through theremainder of 2008.  However, theexpenditures that will be necessary to execute our business plan are subject tonumerous uncertainties, which may adversely affect our liquidity and capitalresources. As of June 30, 2008, we had three proprietary productcandidates in clinical trials, development of which is primarily accomplishedthrough cancellable third-party contracts. We are party to an office space lease that expires on December 31,2009 that requires monthly rental payments of $7,072, which payments arescheduled to increase by 3% in January 2009.  We also expect our R&D expenses tocontinue to trend higher as our product candidates advance through the variousstages of clinical development. The length of time required for clinical trialsvaries substantially according to the type, complexity, novelty and intendeduse of a product candidate. Some of the factors that could impact our liquidityand capital needs include, but are not limited to:

 

·                  the progress of our clinical trials,

·                  the progress of our researchactivities,

·                  the number and scope of our researchprograms,

·                  the progress of our pre-clinicaldevelopment activities,

·                  the costs involved in preparing,filing, prosecuting, maintaining, enforcing and defending patent and otherintellectual property claims,

·                  the costs related to development andmanufacture of pre-clinical, clinical and validation lots for regulatorypurposes and commercialization of drug supply associated with our productcandidates,

·                  our ability to enter into corporatecollaborations and the terms and success of these collaborations,

·                  the costs and timing of regulatoryapprovals and

·                  the costs of establishingmanufacturing, sales and distribution capabilities.

 

We have not commercialized any of our productcandidates to date and, to the extent that our capital resources may beinsufficient to meet our future capital requirements, we may need to financeour future cash needs through public or private equity offerings, debtfinancings or corporate collaboration and licensing arrangements. However, wedo not currently have any commitments for future external funding andadditional equity or debt financing may not be available on a timely basis, onacceptable terms, or at all.  We may alsobe eligible to receive milestone payments under our collaboration agreementwith an affiliate of Sigma-Tau.  However,the achievement of the milestones that are required to trigger the milestonepayments and the timing of any such milestone payments is uncertain, and we maynever receive a milestone payment.

 

If adequate funds are not available, we may berequired to delay, reduce the scope of or eliminate our research anddevelopment programs or obtain funds through arrangements with collaborators orothers that may require us to relinquish rights to certain product candidatesthat we might otherwise seek to develop or 

 

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commercialize independently. In addition, if we raisefunds by selling additional shares of our common stock or securitiesconvertible into our common stock, the ownership interest of our existingstockholders may be significantly diluted. If additional funds are raisedthrough the issuance of preferred stock or debt securities, these securitiesare likely to have rights, preferences and privileges senior to our commonstock and may involve significant fees, interest expense, restrictive covenantsand the granting of security interests in our assets.

 

**OffBalance Sheet Arrangements.**

 

We do not have anyoff-balance sheet arrangements, as such term is defined in Item 303(a)(4) ofRegulation S-K.

 

**Item 3. Quantitative and QualitativeDisclosures About Market Risk.**

 

At June 30, 2008, our cash and cash equivalents,which totaled approximately $7.7 million, were comprised entirely ofmoney-market investments backed by U.S. government obligations, U.S. governmentagency obligations and investment-grade corporate bonds.  All of these securities are subject todefault, changes in credit ratings and changes in market value. We limit ourdefault risk by investing in money markets backed by U.S. government obligations,U.S. government agency obligations and investment-grade corporate bonds.  Our exposure to market risks associated withchanges in interest rates relates primarily to the increase or decrease in theamount of interest income earned on our investment portfolio.  Due to the short-term nature of theseinvestments, if market interest rates were to increase by 10% from levels as ofJune 30, 2008, the decline in fair value would not be material.

 

**Item 4.******* Controls and Procedures***

 

**a) Evaluation of****Disclosure Controls andProcedures**

 

Our management, under the supervision and with theparticipation of our Chief Executive Officer and Chief Financial Officer,performed an evaluation of the effectiveness of the design and operation of our“disclosure controls and procedures” (as defined in Rule 13a-15(e) and15d-15(e) of the Securities Exchange Act of 1934) as of June 30,2008. Based upon this evaluation, management has concluded that, as of June 30,2008, our disclosure controls and procedures were effective to providereasonable assurance that the information required to be disclosed is recorded,processed, summarized and reported within the time periods specified underapplicable rules of the Securities and Exchange Commission, and that suchinformation is accumulated and communicated to management, including our ChiefExecutive Officer and Chief Financial Officer, as appropriate, to allow timelydecisions regarding required disclosures.

 

**b)Changes in Internal Controls**

 

There were no changes inour internal control over financial reporting during the quarter ended June 30,2008 that has materially affected, or is reasonably likely to materiallyaffect, our internal control over financial reporting.

 

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# **PART II – OTHER INFORMATION**

# ** **

#### **Item 1.**             LegalProceedings

 

None.

 

#### **Item 1A.**          RiskFactors

#### ** **

Set forth below and elsewhere in this report and inother documents we file with the Securities and Exchange Commission are risksand uncertainties that could cause actual results to differ materially from theresults contemplated by the forward-looking statements contained in thisreport. The descriptions below include any material changes to and supersedethe description of the risk factors affecting our business previously disclosedin “Part III, Item 1A. Risk Factors” of our Annual Report on Form 10-Kfor the period ended December 31, 2007.

 

**RisksRelated to Our Business**

 

***We have incurred losses since inception and expect to incur significantlosses in the foreseeable future and may never become profitable.***

 

Wehave sustained operating losses since our inception in 1982. We believe theselosses will continue for the foreseeable future as we pursue our productdevelopment efforts related to Tb4. As of June 30, 2008, our accumulateddeficit totaled approximately $72.8 million and our cash and cash equivalentstotaled approximately $7.7 million.

 

Weanticipate substantial and increasing operating losses over the next severalyears as we continue our research and development efforts and seek to obtainregulatory approval of our product candidates to make them commercially viable.Our ability to generate additional revenues and potential to become profitablewill depend largely on our ability, alone or through the efforts of third-partylicensees, to efficiently and successfully complete the development of ourproduct candidates, obtain necessary regulatory approvals forcommercialization, scale-up commercial quantity manufacturing capabilities eitherinternally or through third-party suppliers, and market our product candidates.There can be no assurance that these objectives will occur or that we will everbecome profitable or be able to maintain profitability. Even if we do achieveprofitability, we cannot predict the level of such profitability. If we sustainlosses over an extended period of time and are not otherwise able to raisenecessary funds to continue our development efforts and maintain ouroperations, we may be forced to cease operations.

 

***We will need substantial additional capital to develop our productcandidates and for our future operations. If we are unable to obtain such fundswhen needed, we may have to delay, scale back or terminate our productdevelopment efforts or our business.***

 

Weanticipate that substantial new capital resources will be required to continueour independent development efforts, including any and all follow-on trialsthat will result from our current clinical programs, and to scale upmanufacturing processes for RGN-137, RGN-259 and RGN-352. The actual amount offunds that we will need will be determined by many factors, some of which arebeyond our control. These factors include, without limitation:

 

·                  the scope of our clinical trials, which issignificantly influenced by the quality of clinical data achieved as trials arecompleted and the requirements established by regulatory authorities,

 

·                  the speed with which we complete our clinicaltrials, which depends on the speed with which we can attract and enrollqualifying patients and the quality of the work performed by our clinicalinvestigators,

 

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·                  the time required to prosecute, enforceand defend our intellectual property rights, which depends on evolving legalregimes and infringement claims that may arise between us and third-parties,

 

·                  the ability tomanufacture at scales sufficient to supply commercial quantities of any of ourproduct candidates that receive regulatory approval, which may require levelsof effort not currently anticipated and

 

·                  the successfulcommercialization of our drug candidates, which will depend on our ability toeither create or partner with an effective commercialization organization andwhich could be delayed or prevented by the emergence of equal or more effectivetherapies.

 

Potentialsources of outside capital include entering into strategic businessrelationships, public or private sales of shares of our capital stock, or debt,or other similar financial instruments. We do not at this time have any othercommitted sources of outside capital at this time. Consequently, there can beno assurance that we will be able to obtain capital in sufficient amounts, oron acceptable terms, or in the timeframe needed to ensure the uninterruptedexecution of our business strategy.

 

Onepotential source of capital often relied on by emerging biotechnology companiesis through licensing certain intellectual property rights to otherbiotechnology or pharmaceutical enterprises.  If we raise additionalcapital through such a license, we may have to give up valuable short- and/orlong-term rights to such intellectual property.  In addition, as thebusiness priorities of any license change over time, the possibility existsthat its interest in developing our technology may diminish, which could have amaterial negative impact on the value of our interest in the license.  In addition, if we raise funds by sellingshares of our common stock or securities convertible into our common stock, theownership interest of our existing stockholders may be significantly diluted.If additional funds are raised through the issuance of preferred stock or debtsecurities, these securities are likely to have rights, preferences andprivileges senior to our common stock and may involve significant fees,interest expense, restrictive covenants and the granting of security interestsin our assets.

 

Ourfailure to successfully address ongoing liquidity requirements would have amaterial negative impact on our business, including the possibly ofsurrendering our rights to some technologies or product opportunities, delayingour clinical trials, or ceasing operations.

 

***Our business prospects are difficult to evaluate because we aredeveloping complex medical product candidates.***

 

Sinceour product candidates rely on complex technologies, it may be difficult foryou to assess our growth, licensing or earnings potential. It is likely we willface many of the difficulties that new technology companies often face. Theseinclude, among others:

 

·                  limitedfinancial resources,

 

·                  developingnovel, commercial grade drug substances,

 

·                  testing andevaluating a new chemical entity and its effects in highly-complex biologicalsystems,

 

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·                  marketing newproducts for which a market is not yet established and may never becomeestablished,

 

·                  challengesrelated to the approval and acceptance of drug candidates by federal andinternational regulatory authorities,

 

·                  delays inherentin the execution of clinical trials,

 

·                  high productdevelopment costs that result from all of these factors.

 

·                  competitionfrom other therapies and drug candidates promoted by entities withsignificantly more capital resources and marketing expertise and

 

·                  difficultyrecruiting qualified employees for management and other positions.

 

Wewill likely face these and other difficulties in the future, some of which maybe beyond our control. If we are unable to successfully address thesedifficulties as they arise, our results of operations and business prospectswill be negatively affected. We cannot be certain that our product candidateswill prove safe and efficacious, that our business strategies will besuccessful or that we will successfully address any and all problems that mayarise.

 

***We may not successfully establish and maintain development and testingrelationships with third parties, which could adversely affect our ability todevelop our product candidates.***

 

Wehave only limited resources, experience with and capacity to conduct requisitetesting and clinical trials of our drug candidates. As a result, we rely andexpect to continue to rely on third-party service providers and collaborators,including corporate partners, licensors and contract research organizations (“CROs”),to perform a number of activities relating to the development of our drugcandidates, including the design and conduct of clinical trials and,potentially, the obtaining of regulatory approvals.  For example, wecurrently rely on several third-party contractors to manufacture Tb4, formulateRGN-137, RGN-259 and RGN-352 into drug candidates, develop requisite assays toassess Tb4’seffectiveness in complex biological systems, recruit investigators and sites toparticipate in our trials, manage the clinical trial process and collect,evaluate and report clinical results.

 

Wemay not be able to maintain or expand our current arrangements with thirdparties or maintain such relationships on favorable terms.  Our agreementswith these third parties may also contain provisions that restrict our abilityto develop and test our product candidates or that give third parties rights tocontrol aspects of our product development and clinical programs. In addition,conflicts may arise with our collaborators, such as conflicts concerning theinterpretation of clinical data, the achievement of milestones, theinterpretation of financial provisions or the ownership of intellectualproperty developed during the collaboration. If any conflicts arise with ourexisting or future collaborators, they may act in their self-interest, whichmay be adverse to our best interests.  Any failure to maintain ourcollaborative agreements and any conflicts with our collaborators could delayor prevent us from developing our product candidates.  We and ourcollaborators may fail to develop products covered by our present and futurecollaborations if, among other things:

 

·                  we do notachieve our objectives under our collaboration agreements,

 

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·                  we or ourcollaborators are unable to obtain patent protection for the product,candidates or proprietary technologies we develop in our collaborations,

 

·                  we are unableto manage multiple simultaneous product discovery and developmentcollaborations,

 

·                  ourcollaborators become competitors of ours or enter into agreements with ourcompetitors,

 

·                  we or ourcollaborators encounter regulatory hurdles that prevent commercialization ofour product candidates or

 

·                  we developproducts and processes or enter into additional collaborations that conflictwith the business objectives of our other collaborators.

 

Wealso have less control over the timing and other aspects of our clinical trialsthan if we conducted the monitoring and supervision entirely on our own. Thirdparties may not perform their responsibilities for our clinical trials on ouranticipated schedule or consistent with a clinical trial protocol or applicableregulations. We also rely on CROs to perform much of our data management andanalysis. They may not provide these services as required or in a timelymanner. If any of these parties do not meet deadlines or follow properprocedures, including procedures required by law, the pre-clinical studies andclinical trials may take longer than expected, may be delayed or may beterminated, which would have a materially negative impact on our productdevelopment efforts. If we were forced to find a replacement entity to performany of our pre-clinical studies or clinical trials, we may not be able to finda suitable entity on favorable terms or at all. Even if we were able to find areplacement, resulting delays in the tests or trials may result in significantadditional expenditures and delays in obtaining regulatory approval for drugcandidates, which could have a material adverse impact on our results ofoperations and business prospects.

 

***We are subject to intense government regulation and we may not receiveregulatory approvals for our new drug candidates.***

 

Ourproduct candidates will require regulatory approvals prior to sale. Inparticular, therapeutic agents are subject to stringent approval processesprior to commercial marketing, by the FDA and by comparable agencies in mostforeign countries.  The process of obtaining FDA and corresponding foreignapprovals is costly and time consuming and we cannot assure you that suchapprovals will be granted.  Also, the regulations we are subject to changefrequently, and such changes could cause delays in the development of ourproduct candidates.  In addition, the timing of clinical trials is dependenton, among other things, FDA and investigational review board (“IRB”) reviews,clinical site approvals, successful manufacturing of clinical materials,sufficient funding and other factors outside of our control. There can be noassurance that our clinical trials will in fact demonstrate, to thesatisfaction of the FDA and others, that our product candidates aresufficiently safe or effective. The FDA or we may also restrict or suspend ourclinical trials at any time if either believes that we are exposing thesubjects participating in the trials to unacceptable health risks.

 

Asa consequence, we may need to perform more or larger clinical trials thanplanned, for reasons such as:

 

·                  the FDA orother health regulatory authorities, or IRBs, do not approve a clinical trialprotocol or place a clinical trial on hold,

 

·                  suitablepatients do not enroll in a clinical trial in sufficient numbers or at theexpected rate, or 

 

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datais adversely affected by trial conduct or patient drop out,

 

·                  patientsexperience serious adverse events, including adverse side effects of our drugcandidates,

 

·                  patients dieduring a clinical trial for a variety of reasons that may or may not be relatedto our product candidates, including the advanced stage of their disease andmedical problems,

 

·                  patients in theplacebo or untreated control group exhibit greater than expected improvementsor fewer than expected adverse events,

 

·                  third-partyclinical investigators do not perform the clinical trials on the anticipatedschedule or consistent with the clinical trial protocol and good clinicalpractices, or other third-party organizations do not perform data collectionand analysis in a timely or accurate manner,

 

·                  serviceproviders, collaborators or co-sponsors do not adequately perform theirobligations in relation to the clinical trial or cause the trial to be delayedor terminated,

 

·                  regulatoryinspections of manufacturing facilities, which may, among other things, requireus or a co-sponsor to undertake corrective action or suspend the clinicaltrials,

 

·                  the interimresults of the clinical trial are inconclusive or negative,

 

·                  the clinicaltrial, although approved and completed, generates data that is not consideredby the FDA or others to be sufficient to demonstrate safety and efficacy and

 

·                  changes ingovernmental regulations or administrative actions affect the conduct of theclinical trial or the interpretation of its results.

 

Anyfailure to obtain or any delay in obtaining regulatory approvals would have amaterial adverse impact on our ability to develop and commercialize our productcandidates.

 

***We may not be able to enter into strategicrelationships with third parties related to the development andcommercialization of our product candidates***

 

Oneof our strategic focuses is to enter into relationships with one or morethird-party pharmaceutical companies to license our technology and to help uscontinue the development of our product candidates.  We believe thathaving such relationships would enable us to both defray the costs associatedwith the development of our product candidates and accelerate the speed withwhich we may be able to complete development of and obtain regulatory approvalfor our product candidates and commercialize such products.  However, wecan offer no assurance that we will be able to enter into license anddevelopment agreements with third-party pharmaceutical companies or that anysuch relationships would in fact decrease our costs or accelerate our productdevelopment efforts. If we are unable to enter into such relationships, ourproduct development efforts may be slowed or related costs may increase. In addition, any such relationships would require us to give up significantrights in our product candidates, which rights may, over time, have been worthmore to us if we had been able to commercialize such product candidates withoutentering into third-party agreements.

 

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***Mauro Bove, a member of our Board, is also a director and officer ofSigma-Tau, our largest stockholder, which could give rise to a conflict ofinterest involving Mr. Bove.***

 

MauroBove, a member of our board of directors (“Board”), is also a director andofficer of Sigma-Tau, our largest stockholder and our licensee in Europe withrespect to the development of certain of our drug candidates.  In February 2008,we issued shares of common stock and common stock warrants to certainaffiliates of Sigma-Tau in a private placement that gave us the right torepurchase the shares under certain circumstances.  Also, in 2004, welicensed Tb4 to DefianteFarmaceutica S.p.A., a wholly-owned subsidiary of Sigma-Tau, for internal andexternal wound healing for the European Union.  Upon the successfulcompletion of a Phase II trial Defiante is obligated to either make a $5million milestone payment or initiate and pay for a Pivotal Phase IIItrial.  As a result of Mr. Bove’s relationship with Sigma-Tau, therecould be a conflict of interest between Mr. Bove and our stockholdersother than Sigma-Tau with respect to these and other agreements andcircumstances that may require the exercise of the Board’s discretion withrespect to Sigma-Tau.

 

***We are heavily reliant on our license from the National Institutes ofHealth and may be unable to maintain our license.***

 

Wehave received an exclusive world-wide license to intellectual propertydiscovered at the National Institutes of Health (“NIH”), pertaining to woundhealing and tissue repair. This license terminates upon the last to expire ofthe patent applications that are filed in connection with the license. Thislicense requires us to pay a minimum annual royalty to the NIH, regardless ofthe success of our product development efforts, plus certain other royaltiesupon the sale of products created by the intellectual property granted underthe license. We rely on this license for a significant portion of our business.This license may be terminated for a number of reasons, including non-paymentof the royalty or lack of continued product development, among others. The loss of this license would have a material adverse effect on our businessand business prospects and may require us to cease development of our currentline of product candidates.

 

*** ******Allof our drug candidates are based on a single compound that has yet to be proveneffective.***

 

Ourcurrent primary business focus is the development of Tb4, and itsanalogues, derivatives and fragments, for the treatment of non-healing woundsand other conditions. While we have in the past explored and may in the futureexplore the use of other compounds for the treatment of other medicalconditions, we presently have no immediate plans to develop products for suchpurposes. Unlike many pharmaceutical companies that have a number of uniquechemical entities in development, we are dependent on a single molecule,formulated for different administrations, for the success of our company. As aresult, any common safety or efficacy concerns for Tb4-based products that crossformulations would have a much greater impact on our business prospects than ifwe were more diversified.

 

Ournew drug candidates are still in research and development and we do not expectthem to be commercially available for the foreseeable future, if at all. Only asmall number of research and development programs ultimately result incommercially successful drugs. Potential products that appear to be promisingat early stages of development may not reach market for a number of reasons.These reasons include the possibility that the potential products may:

 

·                  be foundineffective or cause harmful side effects during pre-clinical studies orclinical trials,

 

·                  fail to receivenecessary regulatory approvals,

 

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·                  be precludedfrom commercialization by proprietary rights of third parties,

 

·                  be difficult tomanufacture on a large scale or

 

·                  be uneconomicalor otherwise fail to achieve market acceptance.

 

Ifany of these potential problems occurs, we may never successfully market Tb4-basedproducts.

 

***We have no manufacturing or formulation capabilities and are dependentupon third-party suppliers to provide us with our product candidates. If thesesuppliers do not manufacture our product candidates in sufficient quantities,at acceptable quality levels and at acceptable cost and if we are unable toidentify suitable replacement suppliers, our clinical development efforts couldbe delayed, prevented or impaired.***

 

Wedo not own or operate manufacturing facilities and have little experience inmanufacturing pharmaceutical products. We currently rely, and expect tocontinue to rely, primarily on one of the leading peptide manufacturers tosupply us with Tb4 for furtherformulation into our product candidates.  We have engaged three separatesmaller drug formulation contractors for the formulation of clinical gradeproduct candidates, one each for RGN-137, RGN-259 and RGN-352.  Wecurrently do not have an alternative source of supply for either Tb4 or theindividual drug candidates. If these suppliers, together or individually, arenot able to supply us with either Tb4 or individual productcandidates on a timely basis, in sufficient quantities, at acceptable levels ofquality and at a competitive price or if we are unable to identify areplacement manufacturer to perform these functions on acceptable terms, ourdevelopment programs, could be seriously jeopardized.

 

Therisks of relying solely on single suppliers for our product candidates include:

 

·                  theirrespective abilities to ensure quality and compliance with regulations relatingto the manufacture of pharmaceuticals,

 

·                  theirmanufacturing capacity may not be sufficient or available to produce therequired quantities of our product candidates based on our planned clinicaldevelopment schedule, if at all,

 

·                  they may nothave access to the capital necessary to expand their manufacturing facilitiesin response to our needs,

 

·                  commissioningreplacement suppliers would be difficult and time consuming,

 

·                  individualsuppliers may have used substantial proprietary know-how relating to themanufacture of our product candidates and, in the event we must find areplacement or supplemental supplier, our ability to transfer this know-how tothe new supplier could be an expensive and/or time consuming process,

 

·                  an individualsupplier may experience events, such as a fire or natural disaster, that forceit to stop or curtail production for an extended period,

 

·                  an individualsupplier could encounter significant increases in labor, capital or other coststhat 

 

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wouldmake it difficult for them to produce our products cost-effectively,

 

·                  an individualsupplier may not be able to obtain the raw materials or validated drugcontainers in sufficient quantities, at acceptable costs or in sufficient timeto complete the manufacture, formulation and delivery of our productcandidates.

 

***If any of our key executives discontinue their services with us, ourefforts to develop our business may be delayed.***

 

Weare highly dependent on the principal members of our management team and theloss of our chairman, Allan Goldstein, or chief executive officer,J.J. Finkelstein, could prevent or significantly delay the achievement ofour goals. We have employment agreements with Dr. Goldstein and Mr. Finkelstein.However, we cannot assure you that such agreements would prevent them fromterminating their employment with or without good reason.  In addition, wedo not maintain a key man life insurance policy with respect to Dr. Goldsteinor Mr. Finkelstein. In the future, we anticipate that we will need to addadditional management and other personnel. Competition for qualified personnelin our industry is intense, and our success will depend in part on our abilityto attract and retain highly skilled personnel. We cannot assure you that ourefforts to attract or retain such personnel will be successful.

 

***We are subject to intense competition from companies with greaterresources and more mature products.***

 

Weare engaged in a business that is highly competitive. Research and developmentactivities for the development of drugs to treat indications within our focusare being sponsored or conducted by private and public institutions and bymajor pharmaceutical companies located in the United States and a number offoreign countries. Most of these companies and institutions have financial andhuman resources that are substantially greater than our own, and that haveextensive experience in conducting research and development activities andclinical trials and in obtaining the regulatory approvals necessary to marketpharmaceutical products. With respect to wound healing, Johnson &Johnson is marketing RegranexTM for this purpose in patients with diabetic footulcers. Other companies, such as Novartis, are developing and marketingartificial skins which could compete with our product candidates in certainwound healing areas. Moreover, wound healing is a large and highly fragmentedmarketplace attracting many companies, large and small, to develop products fortreating acute and chronic wounds, including, for example, honey-basedointments and low frequency cavitational ultrasound. Additionally, most largepharmaceutical companies and many smaller biomedical companies are vigorouslypursuing therapeutics to treat patients after heart attacks and othercardiovascular indications.

 

***We face the risk of product liability claims, which could adverselyaffect our business and financial condition.***

 

Wemay be subject to product liability claims as a result of our testing,manufacturing and marketing of drugs. In addition, the use of our productcandidates, when and if developed and sold, will expose us to the risk ofproduct liability claims. Product liability may result from harm to patientsusing our product candidates, such as a complication that was either notcommunicated as a potential side effect or was more extreme than communicated.We will require all patients enrolled in our clinical trials to sign consents,which explain various risks involved with participating in the trial. However,patient consents provide only a limited level of protection, and it may bealleged that the consent did not address or did not adequately address a riskthat the patient suffered. Additionally, we will generally be required toindemnify the clinical product manufacturers, clinical trial centers, medicalprofessionals and other parties conducting related 

 

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activitiesin connection with losses they may incur through their involvement in theclinical trials.

 

Ourability to reduce our liability exposure for human clinical trials andcommercial sales of Tb4 is dependent in part onour ability to obtain sufficient product liability insurance or to collaboratewith third parties that have adequate insurance. Although we intend to obtainproduct liability insurance coverage, we cannot guarantee that productliability insurance will continue to be available to us on acceptable terms, orat all, or that its coverage will be sufficient to cover all claims against us.A product liability claim, even one without merit or for which we havesubstantial coverage, could result in significant legal defense costs, therebypotentially exposing us to expenses significantly in excess of our revenues.

 

***Governmental and third-party payers may subject any product candidateswe develop to sales and pharmaceutical pricing controls that could limit ourproduct revenues and delay profitability.***

 

Thesuccessful commercialization of our product candidates will likely depend onour ability to obtain reimbursement for the cost of the product and treatment.Government authorities, private health insurers and other organizations, suchas health maintenance organizations, are increasingly seeking to lower theprices charged for medical products and services. Also, the trend towardmanaged health care in the United States, the growth of healthcare maintenanceorganizations and legislative proposals to reform healthcare and governmentinsurance programs could have a significant influence on the purchase ofhealthcare services and products, resulting in lower prices and reducing demandfor our product candidates. The cost containment measures that healthcareproviders are instituting and any healthcare reform could reduce our ability tosell our product candidates and may have a material adverse effect on ouroperations. We cannot assure you that reimbursement in the United States orforeign countries will be available for any of our product candidates, or thatany reimbursement granted will be maintained, or that limits on reimbursementavailable from third-party payers will not reduce the demand for, or the priceof, our product candidates. The lack or inadequacy of third-partyreimbursements for certain of our product candidates would decrease the potentialprofitability of our operations. We cannot forecast what additional legislationor regulation relating to the healthcare industry or third-party coverage andreimbursement may be enacted in the future, or what effect the legislation orregulation would have on our business.

 

***Clinical trials could be delayed or fail to show efficacy, resulting inadditional cost or failure to commercialize our technology platform.***

 

Allof our drug candidates are currently in the clinical stage and we cannot becertain that a collaborator or we will successfully complete the clinicaltrials necessary to receive regulatory product approvals. This process islengthy, unpredictable and expensive. To obtain regulatory approvals, acollaborator or we must ultimately demonstrate to the satisfaction of the FDAand others that our product candidates are sufficiently safe and effective fortheir proposed use.  Many factors, known and unknown, can adversely impactclinical trials and the ability to evaluate a product candidate’s safety andefficacy, including unexpected delays in the initiation of clinical sites,slower than projected enrollment, competition with ongoing clinical trials andscheduling conflicts with participating clinicians, regulatory requirements,limits on manufacturing capacity and failure of a product candidate to meetrequired standards for administration to humans. Such factors may have anegative impact on our business by making it difficult to advance productcandidates or by reducing or eliminating their potential or perceived value.Further, if we are forced to contribute greater financial and clinicalresources to a study, valuable resources will be diverted from other areas ofour business.

 

Clinicaltrials for product candidates such as ours are often conducted with patientswho have more advanced forms of a particular condition and/or other unrelatedconditions. For example, in clinical trials 

 

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forour lead product candidate RGN-137, we expect to study patients who are notonly suffering from chronic epidermal wounds but are also older and much morelikely to have other serious adverse conditions. During the course oftreatment, these patients could die or suffer other adverse events for reasonsthat may or may not be related to the drug candidate being tested. Furthermore,and as a consequence of the fact that all of our drug candidates are based on Tb4, cross-over riskexists (a patient in one trial may be adversely impacted by one drug candidateand that adverse event may have implications for our other trials and otherdrug candidates).  However, even ifunrelated to our product candidates, such events can nevertheless adverselyimpact our clinical trials, and our business prospects would suffer.

 

Ourability to complete clinical trials depends on many factors, includingobtaining adequate clinical supplies and having a sufficient rate of patientrecruitment.  For example, patientrecruitment is a function of many factors, including the size of the patientpopulation, the proximity of patients to clinical sites, the eligibilitycriteria for the trial, the perceptions of investigators and patients regardingsafety and the availability of other treatment options. Even if patients aresuccessfully recruited, we cannot be sure they will complete the treatmentprocess. Delays in patient enrollment or treatment in clinical trials mayresult in increased costs, program delays, or failure, any of which cansubstantially affect our business or perceived value.

 

Anumber of factors, including unexpected delays in the initiation of clinicalsites, slower than projected enrollment, competition with ongoing clinicaltrials and scheduling conflicts with participating clinicians, regulatoryrequirements, limits on manufacturing capacity and failure of a productcandidate to meet required standards for administration to humans may causesignificant delays in the completion of our clinical trials. In addition, itmay take longer than we expect to achieve study endpoints and complete dataanalysis for a trial. We may not complete our clinical trials when or asprojected or commence or complete clinical trials involving any of our other productcandidates as projected or may not conduct them successfully.

 

Ifwe fail to complete or if we experience material delays in completing the PhaseII trials as currently planned, or we otherwise fail to commence or complete,or experience delays in, any of our other present or planned clinical trials,including as a result of the actions of third parties upon which we rely forthese functions, our ability to conduct our business as currently planned couldmaterially suffer. Development costs will increase if we experience any futuredelays in our clinical trials or if we need to perform more or larger clinicaltrials than we currently plan. If the delays or costs are significant, ourfinancial results and our ability to commercialize our product candidates willbe adversely affected.

 

***We have no marketing experience, sales force or distributioncapabilities. If our product candidates are approved, and we are unable torecruit key personnel to perform these functions, we may not be able tocommercialize them successfully.***

 

Althoughwe do not currently have any marketable products, our ability to producerevenues ultimately depends on our ability to sell our product candidates ifand when they are approved by the FDA and other regulatory authorities. We currentlyhave no experience in marketing or selling pharmaceutical products and we donot have a marketing and sales staff or distribution capabilities. Developing amarketing and sales force is also time consuming and could delay the launch ofnew products or expansion of existing product sales. In addition, we willcompete with many companies that currently have extensive and well-fundedmarketing and sales operations. If we fail to establish successful marketingand sales capabilities or fail to enter into successful marketing arrangementswith third parties, our ability to generate revenues will suffer.

 

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***Even if approved for marketing, our technologies and product candidatesare unproven and they may fail to gain market acceptance.***

 

Ourproduct candidates which are all based on the molecule Tb4 are new andrapidly evolving and have not been shown to be effective in clinicaltrials.  There is no guarantee that health care providers or patients willbe interested in our product candidates even if they are approved for use. Oursuccess will depend in part on our ability to demonstrate sufficient clinicalbenefits, reliability, safety and cost effectiveness of our product candidatesand technology relative to other approaches, as well as on our ability tocontinue to develop our product candidates to respond to competitive andtechnological changes. If the market does not accept our product candidateswhen and if we are able to commercialize them, then we may never becomeprofitable. Factors that could delay, inhibit or prevent market acceptance ofour product candidates may include:

 

·                  the timing andreceipt of marketing approvals,

 

·                  the safety andefficacy of the products,

 

·                  the emergenceof equivalent or superior products,

 

·                  thecost-effectiveness of the products and

 

·                  ineffectivemarketing.

 

Itis difficult to predict the future growth of our business, if any, and the sizeof the market for our product candidates because the market and technology arecontinually evolving. There can be no assurance that our technologies andproduct candidates will prove superior to technologies and products that maycurrently be available or may become available in the future or that ourtechnologies or research and development activities will result in anycommercially profitable products.

 

***Our technologies and product candidates may have unacceptable sideeffects that could delay or prevent product approval.***

 

Possibleside effects of therapeutic technologies may be serious and life threatening.The occurrence of any unacceptable side effects with our product candidates,during or after pre-clinical studies and clinical trials, or the perception orpossibility that our product candidates cause or could cause such side effects,could delay or prevent approval of our product candidates and negatively impactour business.

 

***Our suppliers use hazardous and biological materials in our business.Any claims relating to improper handling, storage or disposal of thesematerials could be time consuming and costly, and we are not insured againstsuch claims.***

 

Ourproduct candidates and processes involve the controlled storage, use anddisposal by our suppliers of certain hazardous and biological materials andwaste products. We and our suppliers and other collaborators are subject tofederal, state and local regulations governing the use, manufacture, storage,handling and disposal of materials and waste products. Even if we and thesesuppliers and collaborators comply with the standards prescribed by law andregulation, the risk of accidental contamination or injury from hazardousmaterials cannot be completely eliminated. In the event of an accident, wecould be held liable for any damages that result and we do not carry insurancefor this type of claim. We may also incur 

 

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significantcosts to comply with current or future environmental laws and regulations.

 

***If we enter markets outside the United States our business will besubject to political, economic, legal and social risks in those markets, whichcould adversely affect our business.***

 

Thereare significant regulatory and legal barriers to entering markets outside theUnited States that we must overcome if we seek regulatory approval for suchmarket our product candidates in countries other than the United States. Wecurrently intend to market any approved products in the United States, Europe,Japan, India and territories surrounding the Pacific Rim. We will besubject to the burden of complying with a wide variety of national and locallaws, including multiple and possibly overlapping and conflicting laws. We alsomay experience difficulties adapting to new cultures, business customs andlegal systems. Any sales and operations outside the United States would besubject to political, economic and social uncertainties including, amongothers:

 

·                  changes andlimits in import and export controls,

 

·                  increases incustom duties and tariffs,

 

·                  changes incurrency exchange rates,

 

·                  economic andpolitical instability,

 

·                  changes ingovernment regulations and laws,

 

·                  absence in somejurisdictions of effective laws to protect our intellectual property rights and

 

·                  currencytransfer and other restrictions and regulations that may limit our ability tosell certain product candidates or repatriate profits to the United States.

 

Anychanges related to these and other factors could adversely affect our businessif we enter markets outside the United States.

 

***We may not be able to obtain orphan drug exclusivity for our productcandidates. If our competitors are able to obtain orphan drug exclusivity for aproduct that is competitive with one or more of our product candidates and wecannot show that our product candidate is clinically superior, we may not beable to have competing products approved by the applicable regulatory authorityfor a significant period of time.***

 

Regulatoryauthorities in some jurisdictions, including Europe and the United States, maydesignate drugs that target relatively small patient populations as orphandrugs. In June 2004, we received Orphan Drug designation from the FDA forTb4 for thetreatment of EB, a rare genetic disease characterized by the presence ofextremely fragile skin and other tissues, resulting in recurrent blisters fromminor mechanical friction or trauma, and we may pursue orphan drug designationfor additional product candidates. Generally, if a product with an orphan drugdesignation subsequently receives the first marketing approval for theindication for which it has such designation, the product is entitled to aperiod of marketing exclusivity. The exclusivity applies only to the indicationfor which the drug has been designated and approved. The applicable exclusivityperiod is seven years in the United States, but this period may be interruptedif a sponsor of a competitive product that is otherwise the same drug for thesame use can show that its drug is clinically superior to our orphan drugcandidate. The European exclusivity period is ten 

 

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years,but may be reduced to six years if a drug no longer meets the criteria fororphan drug designation, including where it is shown that the drug issufficiently profitable so that market exclusivity is no longer justified. Inaddition, European regulations establish that a competitor’s marketingauthorization for a similar product with the same indication may be granted ifthere is an insufficient supply of the product or if another applicant canestablish that its product is safer, more effective or otherwise clinicallysuperior. If a competitor obtains orphan drug exclusivity for a productcompetitive with EB before we do and if the competitor’s product is the samedrug with the same indication as ours, we would be excluded from the market,unless we can show that our drug is safer, more effective or otherwiseclinically superior. Even if we obtain orphan drug exclusivity for EB for theseindications, we may not be able to maintain it if a competitor with a productthat is otherwise the same drug can establish that its product is clinicallysuperior.

 

**RisksRelated To Our Intellectual Property**

 

***If we are not able to maintain adequate patent protection for ourproduct candidates, we may be unable to prevent our competitors from using ourtechnology or technology that we license.***

 

Oursuccess also will depend in substantial part on our ability to obtain, defendand enforce patents, maintain trade secrets and operate without infringing uponthe proprietary rights of others, both in the United States and abroad.Pursuant to a research agreement with The George Washington University, we haverights to two U.S. patents relating to the treatment of septic shock. We alsoown patents related to the use of Tb4, among other thymicpeptides, for the stimulation of hair growth. Pursuant to an exclusiveworld-wide license from the NIH, we have exclusive rights under a patentapplication filed by the NIH for the use of Tb4 in the treatment ofnon-healing wounds. While this patent has issued in certain countries, wecannot guarantee whether or when the patent will be issued or the scope ofpatent issued in other countries.  We have attempted to create asubstantial intellectual property portfolio, submitting patent applications forvarious compositions of matter, methods of use and fragments and derivatives ofTb4.  Wehave also in-licensed other intellectual property rights from third partiesthat could be subject to the same risks as our own patents.  If any ofthese patent applications do not issue, or do not issue in certain countries,or are not enforceable, the ability to commercialize Tb4 in variousmedical indications could be substantially limited or eliminated.

 

Inaddition, the patent positions of the technologies being developed by us andour collaborators involve complex legal and factual uncertainties. As a result,we cannot assure you that any patent applications filed by us, or by othersunder which we have rights, will result in patents being issued in the UnitedStates or foreign countries. In addition, there can be no assurance that (i) anypatents will be issued from any pending or future patent applications of oursor our collaborators; (ii) the scope of any patent protection will besufficient to provide us with competitive advantages; (iii) any patentsobtained by us or our collaborators will be held valid if subsequentlychallenged; or (iv) others will not claim rights in or ownership of thepatents and other proprietary rights we or our collaborators may hold.Unauthorized parties may try to copy aspects of our product candidates andtechnologies or obtain and use information we consider proprietary. Policingthe unauthorized use of our proprietary rights is difficult. We cannotguarantee that no harm or threat will be made to our or our collaborators’intellectual property. In addition, changes in, or different interpretationsof, patent laws in the United States and other countries may also adverselyaffect the scope of our patent protection and our competitive situation.

 

Dueto the significant time lag between the filing of patent applications and thepublication of such patents, we cannot be certain that our licensors were thefirst to file the patent applications we license or, even if they were thefirst to file, also were the first to invent, particularly with regards topatent rights in the 

 

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UnitedStates. In addition, a number of pharmaceutical and biotechnology companies andresearch and academic institutions have developed technologies, filed patentapplications or received patents on various technologies that may be related toour operations. Some of these technologies, applications or patents mayconflict with our or our licensors’ technologies or patent applications. Aconflict could limit the scope of the patents, if any, that we or our licensorsmay be able to obtain or result in denial of our or our licensors’ patentapplications. If patents that cover our activities are issued to othercompanies, we may not be able to develop or obtain alternative technology.

 

Additionally,there is certain subject matter that is patentable in the United States but notgenerally patentable outside of the United States. Differences in whatconstitutes patentable subject matter in various countries may limit theprotection we can obtain outside of the United States. For example, methods oftreating humans are not patentable in many countries outside of the UnitedStates. These and other issues may prevent us from obtaining patent protectionoutside of the United States, which would have a material adverse effect on ourbusiness, financial condition and results of operations.

 

***Changes to U.S. patent laws could materially reduce any value ourpatent portfolio may have.***

 

Thevalue of our patents depends in part on their duration. A shorter period ofpatent protection could lessen the value of our rights under any patents thatmay be obtained and may decrease revenues derived from its patents. The UnitedStates patent laws were amended in 1995 to change the term of patent protectionfrom 17 years from patent issuance to 20 years from the earliest effectivefiling date of the application. Because the time from filing to issuance ofbiotechnology applications may be more than three years depending on thesubject matter, a 20-year patent term from the filing date may result insubstantially shorter patent protection. This would shorten our period ofpatent exclusivity and may decrease the revenues that we might derive from thepatents and the value of our patent portfolio.

 

***We may not have adequate protection for our unpatented proprietaryinformation, which could adversely affect our competitive position.***

 

Inaddition to our patents, we also rely on trade secrets, know-how, continuingtechnological innovations and licensing opportunities to develop and maintainour competitive position. However, others may independently developsubstantially equivalent proprietary information and techniques or otherwisegain access to our trade secrets or disclose our technology. To protect ourtrade secrets, we may enter into confidentiality agreements with employees,consultants and potential collaborators. However, we may not have suchagreements in place with all such parties and, where we do, these agreementsmay not provide meaningful protection of our trade secrets or adequate remediesin the event of unauthorized use or disclosure of such information. Also, ourtrade secrets or know-how may become known through other means or beindependently discovered by our competitors. Any of these events could preventus from developing or commercializing our product candidates.

 

***We may be subject to claims that we or our employees have wrongfullyused or disclosed alleged trade secrets of former employers.***

 

Asis commonplace in the biotechnology industry, we employ now, and may hire inthe future, individuals who were previously employed at other biotechnology orpharmaceutical companies, including competitors or potential competitors.Although there are no claims currently pending against us, we may be subject toclaims that we or certain employees have inadvertently or otherwise used ordisclosed trade secrets or other proprietary information of former employers.Litigation may be necessary to defend against these claims. Even if we aresuccessful in defending against these claims, litigation could result insubstantial costs and 

 

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wouldbe a significant distraction to management.

 

**RisksRelated To Our Securities**

 

***Our common stock price is volatile, our stock is highly illiquid, andany investment in our stock could decline substantially in value.***

 

Duringthe quarter ended June 30, 2008, our closing stock price has ranged from$0.83 to $1.92 with an average daily trading volume of 32,314 shares. In lightof our small size and limited resources, as well as the uncertainties and risksthat can affect our business and industry, our stock price is expected tocontinue to be highly volatile and can be subject to substantial drops, with oreven in the absence of news affecting our business. The following factors, inaddition to the other risk factors described in this prospectus, and thepotentially low volume of trades in our common stock, may have a significantimpact on the market price of our common stock, some of which are beyond ourcontrol:

 

·                  results ofpre-clinical studies and clinical trials,

 

·                  commercialsuccess of approved products,

 

·                  corporatepartnerships,

 

·                  technologicalinnovations by us or competitors,

 

·                  changes in lawsand government regulations both in the U.S. and overseas,

 

·                  changes in keypersonnel at our company,

 

·                  developmentsconcerning proprietary rights, including patents and litigation matters,

 

·                  publicperception relating to the commercial value or safety of any of our productcandidates,

 

·                  future sales ofour common stock,

 

·                  future issuanceof our common stock causing dilution,

 

·                  anticipated orunanticipated changes in our financial performance,

 

·                  general trendsrelated to the biopharmaceutical and biotechnological industries and

 

·                  generalconditions in the stock market.

 

Thestock market in general has recently experienced relatively large price andvolume fluctuations. In particular, the market prices of securities of smallerbiotechnology companies have experienced dramatic fluctuations that often havebeen unrelated or disproportionate to the operating results of these companies.Continued market fluctuations could result in extreme volatility in the priceof the common stock, which could cause a decline in the value of the commonstock. You should also be aware that price volatility may be worse if thetrading volume of the common stock remains limited or declines.

 

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***Wehave never paid dividends on our common stock.***

 

Wehave paid no cash dividends on any of our classes of capital stock to date, andwe currently intend to retain our future earnings, if any, to fund thedevelopment and growth of our business. In addition, the terms of any futuredebt or credit facility may preclude or limit our ability to pay any dividends.As a result, capital appreciation, if any, of our common stock will be yoursole source of potential gain for the foreseeable future.

 

***Our principal stockholders have significant voting power and may takeactions that may not be in the best interests of our other stockholders.***

 

Asof July 31, 2008, our officers, directors and principal stockholderstogether control approximately 53% of our outstanding common stock. Included inthis group is Sigma-Tau and its affiliates, which together hold outstandingshares representing approximately 41% of our outstanding common stock. Certain shares of common stock held by Sigma-Tau and its affiliates,representing approximately 13% of our outstanding common stock, are subject tovoting agreements under which our Board controls the voting power of suchstock.  We cannot assure you that such voting agreements would preventSigma-Tau and its affiliates from taking actions not in your best interests andeffectively exercising control over us.  In addition, these votingagreements expire with respect to securities representing approximately 10% ofour outstanding common stock on December 31, 2010, and with respect tosecurities representing 3% of our outstanding common stock on June 23,2010.  After such time, we will have no control over the voting of thesesecurities, including with respect to the election of directors and approval ofsignificant corporate transactions. This concentration of ownership may havethe effect of delaying or preventing a change in control and might adverselyaffect the market price of our common stock. This concentration of ownershipmay not be in the best interest of our other stockholders.

 

***Our rights to repurchase certain shares of stock held by Sigma-Tauexpire over time and we may never be able or elect to exercise such rights.***

 

UntilJune 23, 2010, we have the right to repurchase at a price of $5.00 pershare a number of shares of common stock issued to Sigma-Tau equal to thelesser of the shares sold to Sigma-Tau in connection with our private placementof securities on June 22, 2005, or the number of shares necessary toreduce Sigma-Tau’s ownership of our outstanding capital stock to an aggregateof 30.1% at the time of such repurchase. In addition, we have the right to repurchase at any time until December 31, 2009, for $2.00per share or, at any time between January 1, 2010 and December 31,2010, for $2.50 per share, up to 5,000,000 shares of common stockissued to Sigma-Tau in connection with a private placement of securities on February 29,2008.  After December 31, 2010, ourrights to repurchase common stock held by Sigma-Tau expire.  Theseprovisions could, under certain circumstances, allow us to reduce dilution byrepurchasing these shares at prices lower than the then-prevailing market priceof our common stock.  However, we cannotassure you that our share price will increase sufficiently to make suchrepurchases economically feasible or that we would avail ourselves of theopportunity to make such repurchases even if our share price had risen to sucha level.

 

***A sale of a substantial number of shares of our common stock may causethe price of our common stock to decline.***

 

Currently,we are authorized to issue up to 100,000,000 shares of our common stock, and asof July 31, 

 

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2008,there were issued and outstanding 51,553,527 shares of our common stock. Theauthorized but unissued shares may be issued by us in such transactions and atsuch times as our Board considers appropriate, whether in public or privateofferings, as stock splits or dividends or in connection with mergers andacquisitions or otherwise. Sales of a substantial number of shares of ourcommon stock in the public market could harm the market price of our commonstock. As of July 31, 2008, directors, officers and 10% stockholdershold 27,406,290 shares of our common stock and may sell such shares at theirdiscretion subject to certain contractual and regulatory limitations.

 

***The exercise of options and warrants and other issuances of shares ofcommon stock or securities convertible into common stock will dilute yourinterest.***

 

Asof July 31, 2008, there were outstanding options to purchase an aggregateof 4,032,500 shares of our common stock at prices ranging from $0.28 per shareto $3.80 per share, of which options to purchase 2,385,665 shares wereexercisable as of such date. As of July 31, 2008, there were outstandingwarrants to purchase 3,837,320 shares of our common stock, at a weightedaverage exercise price of $3.11.  The exercise of options and warrants atprices below the market price of our common stock could adversely affect theprice of shares of our common stock. Additional dilution may result from theissuance of shares of our capital stock in connection with collaborations ormanufacturing arrangements or in connection with other financing efforts.

 

Anyissuance of our common stock that is not made solely to then-existingstockholders proportionate to their interests (as in a stock dividend or stocksplit) will result in dilution to each stockholder by reducing his or herpercentage ownership of the total outstanding shares.  Moreover, if thatwe issue options or warrants to purchase our common stock in the future and thoseoptions or warrants are exercised or we issue restricted stock, stockholdersmay experience further dilution. Holders of shares of our common stock have nopreemptive rights that entitle them to purchase their pro rata share of anyoffering of shares of any class or series.

 

Inaddition, certain warrants to purchase shares of our common stock currentlycontain an exercise price above the current market price for the common stock,or above-market warrants.  As a result,these warrants may not be exercised prior to their expiration and we may notrealize any proceeds from their exercise.

 

***Our certificate of incorporation, our rights agreement and Delaware lawcontain provisions that could discourage a takeover, even if such a transactionwould be in your best interests.***

 

Ourcertificate of incorporation provides our Board with the power to issue sharesof preferred stock without stockholder approval. In addition, under our rightsagreement, our Board has the discretion to issue certain rights to purchase ourcapital stock when a person acquires in excess of 25% of our outstanding commonshares.  These provisions may make it more difficult for stockholders totake corporate actions and may have the effect of delaying or preventing achange in control, even if such actions or change in control would be in yourbest interests. In addition, we are subject to the anti-takeover provisions of Section 203of the Delaware General Corporation Law, or DGCL. Subject to specifiedexceptions, this section provides that a corporation may not engage in anybusiness combination with any interested stockholder during the three-yearperiod following the time that such stockholder becomes an interestedstockholder. This provision could have the effect of delaying or preventing achange of control of our company. The foregoing factors could reduce the pricethat investors or an acquirer might be willing to pay in the future for sharesof our common stock.

 

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#### **Item 2.             Unregistered Sales of EquitySecurities and Use of Proceeds**

#### ** **

None.

 

#### **Item3.             Defaults Upon SeniorSecurities**

#### ** **

None.

 

#### **Item4.             Submission of Matters to aVote of Security Holders**

#### ** **

None.

 

#### **Item 5.             Other Information**

#### ** **

#### **None.**

#### ** **

#### **Item 6.             Exhibits**

 
| **Exhibit No.** | ** ** | **Description  of Exhibit**                                                                         | ** ** | **Reference**                                                                                                                               |
|----------------------|------------|-----------------------------------------------------------------------------------------------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------|
|                 |       |                                                                                                |       |                                                                                                                                        |
| 3.1                  |       | Restated Certificate of Incorporation of the Company                                                |       | Exhibit 3.1 to the Company’s Registration  Statement No. 33-9370, Amendment No. 1 (filed November 26,  1986)       |
|                 |       |                                                                                                |       |                                                                                                                                        |
| 3.2                  |       | Certificate of  Amendment                                                                           |       | Exhibit 3.2  to the Company’s Transitional Report on Form 10-K (filed March 18,  1991)                                  |
|                 |       |                                                                                                |       |                                                                                                                                        |
| 3.3                  |       | Certificate of Amendment                                                                            |       | Exhibit 3.3 to the Company’s Form 10-KSB  (filed April 2, 2001)                                                         |
|                 |       |                                                                                                |       |                                                                                                                                        |
| 3.4                  |       | Form of  Certificate of Designation of Series A Participating Cumulative  Preferred Stock |       | Exhibit 2  to the Company’s Current Report on Form 8-K (filed May 2, 1994)                                              |
|                 |       |                                                                                                |       |                                                                                                                                        |
| 3.5                  |       | Amended and  Restated Bylaws of Company                                                             |       | Exhibit 3.4  to the Company’s Quarterly Report on Form 10Q (filed August 14,  2006)                                     |
|                 |       |                                                                                                |       |                                                                                                                                        |
| 3.6                  |       | Amendment to  Amended and Restated Bylaws of the Company                                            |       | Exhibit 3.6  to the Company’s Registration Statement No. 333-152250 (filed  July 10, 2008)                              |
|                 |       |                                                                                                |       |                                                                                                                                        |
| 4.1                  |       | Form of  Stock Certificate                                                                     |       | Exhibit 4.1  to the Company’s Registration Statement, File No. 33-9370, Amendment  No. 1 (filed November 26, 1986) |

 

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| 4.2                   |   | Form of  Rights Certificate                                                                                                                                |   | Exhibit 3  to the Company’s Current Report on Form 8-K (filed May 2, 1994)                                                       |
|-----------------------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------|
|                  |   |                                                                                                                                                            |   |                                                                                                                                                 |
| 4.3                   |   | Rights  Agreement, dated as of April 29, 1994, between the Company and American  Stock Transfer & Trust Company, as Rights Agent                  |   | Exhibit 1  to the Company’s Current Report on Form 8-K (filed May 2, 1994)                                                       |
|                  |   |                                                                                                                                                            |   |                                                                                                                                                 |
| 4.4                   |   | Amendment  No. 1 to Rights Agreement, dated March 4, 2004, between the Company  and American Stock Transfer & Trust Company, as Rights Agent |   | Exhibit 4.3  to the Company’s Annual Report on Form 10-KSB (filed March 31,  2006)                                               |
|                  |   |                                                                                                                                                            |   |                                                                                                                                                 |
| 31.1 &  31.2 |   | Certifications  dated August 11, 2008                                                                                                                      |   | Certifications  Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed  herewith)                                                     |
|                  |   |                                                                                                                                                            |   |                                                                                                                                                 |
| 32.1 &  32.2 |   | Certifications  dated August 11, 2008                                                                                                                      |   | Certifications  Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to  Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith) |

 

**SIGNATURES**

 

In accordance withthe requirements of the Exchange Act, the registrant caused this report to besigned on its behalf by the undersigned, thereunto duly authorized.

 

 
|   | RegeneRx Biopharmaceuticals, Inc. |
|--------|----------------------------------------|
|   | (Registrant)                           |   |
|   |                                   |
|   |                                   |
| Date:  | August 11, 2008                   |   | /s/J.J. Finkelstein |
|   |                                   | J.J. Finkelstein |
|   |                                   | President and  Chief Executive Officer |
|   |                                   |   |
|   |                                   |   |
|   | /s/C. Neil Lyons                       |
|   |                                   | C. Neil Lyons |
|   |                                   | Chief Financial  Officer |
|        |                                        |  |  |  |  |

 

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